As competition heats up and shopping habits continue to change, grocers are preparing to deliver the goods.
A taste of the future of grocery retailing was on display in Seoul, South Korea in 2011, when Tesco’s Homeplus banner launched a virtual supermarket in a busy subway station. Commuters could check out huge billboards depicting store shelves and use their mobile phones to scan QR codes of the products they wanted to buy. The groceries were then delivered shortly after shoppers arrived home.
In the new omni-channel universe, smart retailers across all sectors are connecting to consumers anywhere, anytime. While eCommerce and mobile commerce are a crucial part of the mix, the grocery industry has been slow to adopt these channels. But to stay competitive and remain relevant with today’s digital consumers, supermarkets must get in the e-groceries game.
The Amazon Effect
Why now? To start, online giant Amazon is making a big push into online grocery delivery, which could take a bite out of retailers’ sales. The company has been testing its e-grocery service, AmazonFresh, in Seattle for about five years and recently expanded to the L.A. market. AmazonFresh is reportedly expanding to the San Francisco Bay Area later this year and could launch in in as many as 40 urban areas in 2014, some outside the United States.
Walmart has been testing same-day grocery delivery in California since 2011. The company is making eCommerce a major part of its growth strategy, but has no immediate plans to expand its U.S. online grocery division. When the time comes, however, Walmart’s Asda chain in the U.K. could offer some valuable expertise: Asda is the second-largest online grocer in the U.K., where the online grocery market is expected to double to £11 billion by 2017.
A 2012 global survey by Nielsen found consumers’ online shopping intentions for food and beverage increased 44% in two years alone. In the U.S., the current grocery eCommerce sales account 3% of the $631 billion grocery market, and is projected to increase to over 5% becoming a 32 billion industry by 2015.
From a demand standpoint, Nielsen observes that the first generation of “digital natives”—those born and raised in the digital age—are now forming households. For this tech-savvy cohort, “online is a way of life for convenient, on-demand and personalized attention.” They also have the mentality of “what I want, when I want it and where I want it.”
Consumers who have embraced online grocery shopping are motivated by sheer convenience. In a Forrester Research survey, 47% of web grocery buyers said they like buying groceries online because it saves time and they can avoid the hassle of going to the grocery store. Grocery shopping online is also appealing for consumers looking for specialty items: 47% of web grocery shoppers said they like buying groceries online because they can find products they might not find in regular stores.
Despite the shifts in consumer shopping behaviours, e-commerce isn’t a major strategy for most brick-and-mortar retailers due to a number of inherent challenges. One major obstacle to cost-effective grocery is the “last-mile” problem: consumers typically don’t want to pay delivery fees.
Overcoming Growing Pains
There are also complex logistical challenges associated with grocery delivery, including timely delivery of perishable foods, figuring out the most efficient delivery routes and the relatively high cost of fulfillment. But as Forrester notes, brick-and-mortar retailers with established brands and a local presence have the advantage of fulfillment at regional stores. For example, Safeway fulfills online orders from dedicated Safeway supermarkets in each region rather than investing in centralized distribution centers.
While grocery retailers have some advantages over pure-play online delivery services, e-grocers are mastering the “anytime, anywhere” strategy. Last year, Peapod became the first grocer to launch virtual supermarkets in the U.S., setting up shop in 100 commuter rail stations in several eastern U.S. cities and Chicago. This summer, Peapod launched mobile billboards on the sides of its delivery trucks that let consumers to shop on the spot with their phones. The company is also expanding its pick-up service, which allows shoppers to order their groceries online and pick them up at select locations.
As online players become more adept at their game, eCommerce is clearly becoming a vital strategy for traditional retailers. While physical stores will remain an integral part of many consumers’ shopping journey, the lines between online and offline will increasingly blur. Savvy grocery retailers that put the shopping cart at consumers’ fingertips—be it online, mobile or tablet—will thrive in the new digital retail world. Those that don’t will be left behind.